Volumes Rising while Volatiltiy Settles

Yesterday was our most active day since our start. We brokered over 1600mt of product divided over butter, SMP and cream. But while the activity over the last few days seems to grow, price volatility appears to settle a bit. Looking back in the last weeks we see a clear downtrend on butter and SMP, but we can't remember the time prices eased down so slowly. 

It fits in our market view that the market is oversupplied, but that we are nearing levels where buyers are also comfortable buying a bit of volume. We think most buyers will try to "buy down" the market step by step, but they will not wait until the market collapses like they did last year in October. Most seem to realise that seen over a longer period, we are closer to the bottom than we are to the top. But this graduate downtrend could bring us to levels we have seen earlier this year in January we think.

We have learned as well, something that drops quickly, bounces up quickly as well. But a market that trades down in slow steps might probably reverse the same way. The quick increase we saw in 2021 was caused by producers being oversold and faced with less milk, traders and end users being caught short while volumes they bought were being postponed. This cocktail created a giant short squeeze and a market where securing the supply was key. The start of táhe war in Ukraine added extra oil to the fire, causing the market to rally again.

But we think a similar event is unlikely. Producers are selling conservatively as most expect less milk in Q3/Q4 due to lower milk prices. End users are securing volumes for further out and we see most partners keep a bit of safety stock for when the market gets tighter again. We think we said it before, but the "just in time" strategy has been replaced by "enough all the time". So when milk volumes are reducing due to lower milk prices (and they will) most producers won't be oversold, most traders will be well positioned with some stock and end users won't feel the need to panic buy. The unavoidable uptrend will therefore probably be similar to the current slow but steady downtrend.